- AT&T (T -0.4%) CEO John Stankey stuck up for his company's expensive acquisition of Time Warner - a media move that set the foundation for the new blockbuster media spin-off and combination with Discovery (DISCA -0.2%) - in today's keynote address at the JPMorgan Global Technology, Media and Communications Conference.
- A few years back, "We had a strong belief that we could help our domestic connectivity business significantly. And that started us down the path of the direct-to-consumer evolution."
- "I think realistically, HBO Max would not be where it is today, if not for the strength of the two combined companies, what AT&T was able to bring both in distribution as well as some of the economic clout - market clout, to be able to normalize agreements, and get the product and service off the mark," he says.
- The media move also set AT&T up better as a global company, he says. "Our connectivity business ... is kind of captive to the United States for the most part."
- The company's dividend came up, naturally; cutting the dividend had already stolen the spotlight in investor interest from any synergies that the deal would produce.
- But Stankey is expecting "a little bit of value unlock" in not only the media asset but also the communications asset.
- "There's been concerns about the balance sheet; when $43B comes back on the balance sheet to pay down debt, I think a little bit of that overhang starts to ease and I would expect our multiples to start to improve relative to the peer group," he says.
- And sizing the dividend to the "reality that the company was going to be ... about 35% smaller after the WarnerMedia spin-out and the DirecTV spin-out" still leaves "what I believe is a very, very attractive dividend." Some $8B-$9B of cash a year will still put AT&T in the upper 95th percentile of yield, he says, and a "comfortable place for us to be in the 40-43% payout ratio."
- As for top priorities with cash from a resized dividend, Stankey points to aggression in the wireless market. One of the things that gave him confidence in making the move was "freeing up that additional cash flow to make sure our spectrum position and our network is literally one of the best wireless broadband networks in the United States. And we need to invest at that level to do that."
- Fiber is as important as the company's 5G moves, he says. "I want three businesses growing, when this is all said and done. I want the consumer fixed business growing, I want an enterprise business that's growing and I want a wireless business that's growing."
- When he came in last year, investment started then was to improve the operating profile and "start making some of those hard decisions on the infrastructure that we needed to re-engineer in this company, shutting down long held systems that, you know, we're serving products that ... we're at the mature end of their stage and needed to ultimately be brought in."
- On Mobility, Stankey is expecting rivals to push hard but that AT&T is enjoying success and needs to build on that, acknowledging "We haven't gotten the brand in the position of the brand and the place that I want it in the market. We're still, you know, a little obtuse as to when the AT&T brand stands for."
- As for projections of $20B-plus in free cash flow, the math is "not all that complicated," Stankey says. AT&T is expecting a relatively stable tax environment (which could always change), and it's expecting it can sustain "good market momentum ... in broadband, we're enjoying market momentum in wireless." Lower interest costs on debt also play a role, and Stankey says there's a lot of work going into re-engineering the cost structure of the business.